Navigating the Digital Capital Paradox: Whether and How It Impacts Export Intensity

Established firms are making substantial investments in digital capital (DC) – that is, capitalized software and systems – to enhance exports, yet they often face perplexing, even negative returns. We argue that this tension reflects an inherent resource–liability paradox, where DC acts simultaneously as a strategic resource and an operational liability. Drawing on paradox theory, we examine a framework that specifies how dynamic capability and external institutional frictions shape the outcomes of this persistent tension. Using longitudinal data of Chinese listed firms, we find that the unmanaged paradox manifests as a significant negative impact on export intensity. We theorize and demonstrate that a strong firm‐level digital orientation (DO) enables firms to reconcile the tension and reverse the negative effect. Informal institutional distance exacerbates the core paradox, while formal distance does not, highlighting the primacy of implicit, cognitive frictions over explicit, regulatory costs. Our study enriches the export literature and paradox theory by identifying DO as a higher level dynamic capability and advancing understanding of contextual intensification by disentangling the distinct roles of formal and informal institutional distances. Hence, realizing DC's international value depends not on the investment itself, but on the firm's ability to manage these internal contradictions within challenging institutional contexts.